Why Standalone Memory Care Providers are Struggling With Occupancy

Take Lake Oswego, Oregon-based Anthem Memory Care, which is having trouble raising equity and paying its quarterly rent in full to LTC Properties (NYSE: LTC), its real estate investment trust (REIT) landlord.

Anthem, for its part, expects to resolve certain staffing and occupancy issues within the next 60 to 90 days, Principal Mark Rockwell told Senior Housing News—and the company anticipates being around “for many years to come.”

Still, it’s not entirely surprising that standalone memory care operators and developers have run into these types of challenges, Richard Anderson, an analyst at Mizuho Securities, suggested to SHN.

“This is a relatively new type of health care product—it’s a learning curve in that regard,” he said.

The sector reached a high point in late 2008, when the occupancy of freestanding memory care communities nationwide averaged 88.8%.

But that didn’t last long, according to Beth Mace, chief economist at the National Investment Center for Seniors Housing & Care (NIC).

Occupancy rates at freestanding memory care communities have been trending downward since about 2011, Mace explained to SHN. In the second quarter of 2016, the occupancy of freestanding memory care communities nationwide averaged just 82.7%.

“Really, what happened is that there’s been a lot of construction activity of freestanding memory care,” Mace said.

In late 2015, for instance, standalone memory care construction as a share of inventory was 14.8%, “which is a lot,” Mace noted.

Today, that figure has fallen to 7.6%. Still, the sector continues to feel the effects of the large amount of development that took place years earlier.

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The surge in standalone memory care development a few years ago likely occurred in response to predictions that memory loss will soon impact more Americans than ever before.

Currently, more than 5 million Americans have Alzheimer’s disease, according to the Alzheimer’s Association. By 2050, as many as 16 millions Americans could have the disease.

“[Freestanding memory care] has been overdeveloped because of the optics of that demand,” Anderson said.

Now, though, many freestanding memory care communities appear to be waiting for the promised demand to come to them.

“We’ve got too many stand-alones and too many that are in lease-up mode,” Anderson said.

‘A business for the long term’

Some standalone memory care operators have managed to dodge many of the challenges associated with the present development climate.

One such provider—Irvine, California-based Silverado—appears to be navigating the waters so well that it’s growing. Silverado currently operates 36 memory care communities in California, Arizona, Illinois, Texas, Utah, Washington and Wisconsin, and plans to open a new community in Alexandria, Virginia, early next year.

There are different ways standalone memory care providers can position themselves for success in the current environment, according to Mace.

“The really strong memory care operators are the ones that have therapeutic programs that address memory impairment,” she said. In other words, strong providers don’t just offer hospitality—they keep the resident engaged, happy, and potentially have programs in place to slow the onset of memory loss.

All the while, the standalone memory care communities aren’t going to go away.

“I think it will be a business for the long term, and that the market is just trying to figure out how the supply and demand works,” Anderson said.

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